Selling POSCO Now To Double Down Later

Scanning the stock charts early this Monday morning, I’m seeing that the market is getting ready to fall again into an ending 5th wave of this current downtrend, which would then make me a big buyer at least for the short and intermediate term, and even possibly the long term, if it does happen. I really don’t expect a sustainable long-term rebound to the upside here, but the market could trade up possibly because the Fed is meeting today and tomorrow and the market is looking for them to lower rates. Maybe the rate reduction is already priced in? I'm betting it is and my shorts will do better than my longs this week. Get ready for options expiration at the end of the week. It should be very volatile to be sure.

My low-risk high-reward trade setup stock scans this morning popped up one of the world’s biggest steel producers as a short sale. I would like to buy into this steel producer but not at this price. I’m looking for the price of this steel producer taking another possible discount of 25% to 40% from its current price before the selling pressure stops. See below for more analysis on this short sale stock pick.

Short Sell POSCO (PKX)

• Sell Entry: 65.65 to 74.04
• Stop-Loss: 75.80

Take Profit Areas

• 55.50
• 45.35
• 35.20

POSCO News and Analysis

Posco is saying they are going to invest $4.4 billion in 2009 to expand capacity and rebuild their steel furnaces. They are betting against the rest of the steel makers currently, who are lowering their production capacity. Posco is trying to get more market share when the steel market turns around in the future.

Posco is one of the only steel producers currently to maintain its production volumes despite the global slowdown. Some other Asian steel producers are doing the same as Posco. In the long term, they should succeed with this plan. In the short term, I think it will be a negative for the share price, but actually making it a great buying opportunity of these shares a little later on. In the meantime I’m sticking to my short position here on Posco.

I stick to my views that Asia is still the place to be invested short, intermediate and especially long term, and that Asia really does have the ability to suck up any excess supply with their 2009 forecasted 4% to 5% GDP growth and the associated demand that comes from that kind of growth. Although, be careful, Asia could head into a depression with the Western world - the recipe for that scenario is already in place if US and European governments and central banks don’t fix the credit crisis, liquidity problem, and resulting financial panic. I’m at least expecting a prolonged recession for the West. As far as a full-blown depression for the West and or the rest of the world, I hope not, but I’m not counting it out just yet. What is done now by the powers that be to fix this mess will depend on whether it’s a recession only, or a far more severe depression.

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